December public borrowing lower than expected, debt at record

By IBT Staff Reporter On 01/24/12 AT 6:40 AM

British public borrowing was lower than expected in December, thanks to stronger tax receipts, but total outstanding debt rose above the 1 trillion pound mark for the first time on record, official data showed on Tuesday.

The Office for National Statistics said that public sector net borrowing excluding public sector interventions - the government's preferred measure - fell to 13.708 billion pounds last month from 15.912 billion pounds in December 2010.

This was below economists' average forecast in a Reuters poll of 14.9 billion pounds and took borrowing in the fiscal year to date to 103.289 billion pounds, down from 114.604 billion in 2010/11.

The ONS said government tax receipts had been boosted by the bank levy imposed on financial institutions to recoup some of the costs of the financial crisis, while spending fell modestly.

However, public sector net debt excluding financial interventions rose to 1.004 trillion pounds in December, the highest since records began in 1993. The ONS said it expected net debt to dip in January due to tax receipt inflows, but to rise again in February.

Weak growth and uncertainty about the knock-on effects of the euro zone debt crisis have already forced the government to admit it will take two years longer to eliminate its budget deficit than it envisaged when it came to power in 2010.

So far, markets have given the Conservative-led government the benefit of the doubt and most analysts reckon it will achieve its aim of reducing its overall budget deficit to 127 billion pounds, or 8.4 percent of GDP, in the current 2011/12 fiscal year from 136 billion in 2010/11.

But that could change if the euro zone situation takes a turn for the worse and Britain slides into a deep recession.

Official data on Wednesday is expected to show the economy shrank by 0.1 percent in the final three months of 2011, in line with forecasts produced by the Office for Budget Responsibility, an independent body charged with producing the government's fiscal and economic forecasts at arms-length from ministers.

Such a small dip would not be enough to trigger a reassessment of Britain's prized triple-A sovereign rating, which will come as a relief to the government after the mass downgrade of euro zone nations' sovereign ratings by credit ratings agency Standard & Poor's earlier this month.

Of the Group of Seven leading industrialised nations, only Britain, Canada and Germany have managed to cling on to top-notch ratings from all three of the main credit ratings agencies.

Many analysts reckon Britain has a good chance of retaining its triple-A rating, thanks to having its own currency, an independent central bank that is currently buying UK government bonds to shore up growth, and government plans to cut spending.

However, Moody's warned at the end of last year that the euro zone crisis was putting Britain's triple-A rating at risk and further shocks to the economy could derail government efforts to balance the budget.

The broader public sector net borrowing measure -- which includes the cost of bailing out Britain's banks, as well as some revenues from the sector -- came in at 10.791 billion pounds in December, down from 13.935 billion pounds in December 2010.